Apple Rumors Trump Another Industry Event

You may not know this, but there is a major mobile phone industry event in progress this week, the Mobile World Congress in Barcelona. That’s where the movers and shakers in that business are busy showing off their new products and services.

That is, except for one company who has managed to upstage yet another tech industry trade show that it didn’t attend.

In case you forgot, there was actually a Consumer Electronics Show in Las Vegas last month. Maybe you didn’t hear much about it, even though it featured demonstrations of new tablet computers, smartphones, 3D TVs and, of course, loads of accessories for the iPhone and iPad. That’s also the week when the Mac App Store debuted with the usual press release fanfare from Apple, but even that news was overshadowed by the announcement of a major media event the following week. That’s the one where the Verizon Wireless version of the iPhone debuted.

So while makers of mobile gear are currently strutting their stuff in Spain, there are rumors in the mainstream media that the iPhone is going to get a little brother (or sister) come this summer. The main sources appear to be a report at Bloomberg News and the Wall Street Journal that cite the usual informed sources about the forthcoming expansion to the iPhone lineup.

I’ll detail the speculation in a moment, but the most important element here is that this particular story has been around, in one form or another, almost since the original iPhone was demonstrated in 2007. The logic appears to make sense. Apple cemented its dominance of the digital media player market with the iPod nano, and added the iPod shuffle to move further down market. That made plenty of sense for music players, and being able to buy a genuine Apple gadget for as little as $49 made the iPod the most casual of purchases even for those who are strapped for cash.

Unfortunately, the cell phone industry is rather more complicated. Yes, you can buy most any handset you want, untethered to a carrier, for prices that rival that of some flat panel TV sets. The reason you can also get those same gadgets for next to nothing is the carrier subsidy. If you agree to accept a two-year service contract with the required minimum voice and data plans, hundreds of dollars are lopped off the purchase price. But don’t feel sorry for the carrier, because their monthly rates include that subsidy. In a way it’s similar to buying something with your credit card, and paying off the balance over a 24-month period.

So even though Apple’s revenue for every single iPhone sold is over $600, your price is $199 or $299 for the iPhone 4, depending on whether you want 16GB solid state storage, or 32GB. Apple and AT&T also offer the 8GB iPhone 3GS for a $49 subsidized price to capture customers who can’t afford the higher priced spread.

But rather than just sell last year’s model at a lower price until stocks are depleted, those rumors claim that Apple plans to build a tinier or “nano” version if the iPhone, sporting a smaller edge-to-edge screen and using other space-saving tricks to shave maybe a third from the size and weight of the original. The product will reportedly cost from $200-300 unsubsidized, which factors out to free with a standard wireless plan. Free would pit this iPhone nano, or whatever it’s called, against every other relatively cheap mobile handset on the market, even the basic feature phone. After all, why buy an entry-level LG, Nokia, Palm, Samsung, or Sony Ericsson handset when you can get a genuine iPhone for exactly the same subsidized price?

The existence of the iPhone has already upended the smartphone industry. Yes, Nokia sells more product, but most are the cheaper, lower-profit models, and that’s one key reason why the company has entered in a pact with Microsoft to switch to Windows Phone 7, eventually.

The theory goes that an iPhone nano will deliver industry dominance to Apple in the same fashion as the arrival of cheap iPods. Of course, the wireless phone industry is much more complicated, with strong competitors, most particularly the Google Android OS. But making it easier for people to own an iPhone must be a positive development, right?

I suppose, but the question is what Apple must sacrifice to build a slimmer, trimmer iPhone. I expect it will have less solid stage storage, probably 8GB. The screen will be tinier, but if kept in the same proportion as the one on the standard iPhone, it should be able to run the same apps without the need for updates, only in a tinier amount of space.

Now in the real world, the screen on today’s iPhone is mighty small in the scheme of things, and I’m sure many of you are busy zooming text and pictures to make them visible. We aren’t all teenagers with our eyesight reasonably capable of picking out tiny letters unless you’re visually challenged.

Certainly, any suggestion that Apple might build an iPhone with a bare-bones screen, similar to that of a standard cell phone, is out of the question. Yes, Apple could do wonders with the user interface, but most people who buy those handsets just want to make phone calls and keep a basic contact list for speed dialing. What’s more, Apple doesn’t build a product unless a difference can be made, with loads of profits earned.

Is an iPhone nano such a product? That remains to be seen, but the speculation, without doubt fueled by Apple’s marketing people, was sufficient to wipe much of the talk about the Mobile World Congress from the front pages of mainstream media. It’s an act of sheer brilliance!